PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b),THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE. T.C. Summary Opinion 2014-10
UNITED STATES TAX COURT
ROJ CARL SNELLMAN AND PATRICIA SNELLMAN, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13186-12S. Filed February 3, 2014.
Roj Carl Snellman and Patricia Snellman, pro sese.
Jeremy D. Cameron, for respondent.
SUMMARY OPINION
GUY, Special Trial Judge: This case was heard pursuant to the provisions
of section 7463 of the Internal Revenue Code in effect when the petition was
filed.1 Pursuant to section 7463(b), the decision to be entered is not reviewable by
1 Unless otherwise indicated, section references are to the Internal Revenue Code (Code), as amended and in effect for 2009, and Rule references are to the (continued...) -2-
any other court, and this opinion shall not be treated as precedent for any other
case.
Respondent determined a deficiency of $4,396 in petitioners’ Federal
income tax for 2009. Petitioners, husband and wife, filed a timely petition for
redetermination with the Court pursuant to section 6213(a). Petitioners resided in
Florida at the time the petition was filed.
The issue for decision is whether petitioners are entitled to deductions for
unreimbursed employee business expenses reported on Schedule A, Itemized
Deductions.
Background
During 2009 petitioners maintained their personal residence in Indialantic,
Florida. Two of their four children were of school age and attended local schools
in Indialantic. Petitioners owned and managed a rental real estate property in
Florida.
I. Mr. Snellman’s Employment
Mr. Snellman was unemployed during the first several months of 2009. On
May 26, 2009, he began work as a project manager for U.S. Fidelis, Inc. (Fidelis),
1 (...continued) Tax Court Rules of Practice and Procedure. All monetary amounts are rounded to the nearest dollar. -3-
in Wentzville, Missouri. Fidelis marketed and sold extended automobile
warranties primarily to individual customers.
Fidelis hired Mr. Snellman to manage the development of an automated
interactive system to track its customers’ credit card payments. Although Fidelis
informed Mr. Snellman that he would be paid an annual salary of $90,000, he
understood that Fidelis expected the credit card project to be completed no later
than December 31, 2009, and that his employment would end at that time.2
Mr. Snellman testified that a Fidelis representative told him that he would
not be reimbursed for expenses related to his employment. Fidelis did not offer to
assist Mr. Snellman in moving to Missouri.
II. Travel and Living Arrangements
On May 24, 2009, Mr. Snellman drove from his home in Florida to
Missouri. Mr. Snellman testified that he stayed in a hotel in Missouri from
May 25 to June 10, 2009.
On June 11, 2009, Mr. Snellman signed a lease agreement to rent an
apartment in St. Charles, Missouri, for $525 per month through December 31,
2009. The apartment was approximately 18 miles from Fidelis’ offices.
2 Mr. Snellman testified that he never received a written employment contract from Fidelis and that all employment negotiations were conducted by telephone with a Fidelis representative. -4-
Mr. Snellman negotiated an addendum to the lease agreement which stated that if
he lost his job with Fidelis and provided the landlord with 30 days’ written notice,
he would be permitted to terminate the lease without having to pay a “lease break
fee”.
Fidelis began to experience financial difficulties, and Mr. Snellman’s
employment ended abruptly on November 2, 2009. After collecting his final
paycheck, Mr. Snellman drove back to Indialantic on November 18.
III. Petitioners’ 2009 Tax Return
Petitioners filed a joint Federal income tax return for 2009 reporting the
following items of income: Mr. Snellman’s wages of $35,984 from Fidelis, a
taxable distribution from a retirement account of $26,000, capital gains of $713,
income from rental real estate activity of $21,681, and dividend income of $2.
Petitioners attached Schedule A and Form 2106-EZ, Unreimbursed
Employee Business Expenses, to their return. Mr. Snellman reported on the Form
2106-EZ that he drove his vehicle 7,381 miles in connection with his employment
at Fidelis. Applying the standard mileage rate of 55 cents per mile, he reported
total vehicle expenses of $4,060.3 He also reported expenses for travel while away
3 The Commissioner generally updates the optional standard mileage rates annually. See sec. 1.274-5(j)(2), Income Tax Regs. The standard mileage rate of (continued...) -5-
from home of $27,200--an amount he derived by multiplying 160 days (the total
number of days he purportedly spent in Missouri) by a per diem rate of $170 for
meals, incidental expenses, and lodging.
IV. Notice of Deficiency
Respondent disallowed the deductions petitioners claimed for unreimbursed
employee business expenses described above for lack of substantiation and on the
ground the expenses were not ordinary and necessary business expenses.
V. Petitioners’ Records
At trial petitioners provided written logs and invoices in an effort to
substantiate the expenses described above.
A. Mileage Log
Petitioners provided a mileage log which indicates that Mr. Snellman drove
10,621 miles between May 24 and November 18, 2009.4 Daily entries include the
date, odometer readings, total mileage, and various destinations (e.g., Fidelis,
Starbucks, Walmart, Sam’s Club, and various restaurants). The log does not
3 (...continued) 55 cents per mile for 2009 is set forth in Rev. Proc. 2008-72, sec. 2.01, 2008-2 C.B. (Vol. 2) 1286, 1286. 4 The mileage total in the log far exceeds the mileage total that petitioners reported on Form 2106-EZ. Mr. Snellman testified that the log is a more accurate reflection of his vehicle expenses. -6-
distinguish between transportation for business and personal purposes, nor does it
indicate the distance to each destination or specify the point of origin for each trip.
Mr. Snellman testified that he “assembled” the mileage log after receiving
the notice of deficiency. The record does not reflect whether Mr. Snellman
maintained contemporaneous records related to his vehicle expenses and, if so, the
whereabouts of those records or why he found it necessary to reconstruct them in
2012.
B. Additional Expenses
Petitioners assert that they incurred additional expenses related to Mr.
Snellman’s employment with Fidelis. At trial they offered receipts for auto repair
charges of $962, postal service fees of $27, restaurant expenses of $430, rental car
charges of $311, dry cleaning expenses of $20, cab fare of $82 from St. Charles to
the airport in St. Louis, Missouri,5 four airline invoices for round trips from
Missouri to Florida totaling $1,119, and Internet and cable service charges of
$247.
5 Petitioners offered a second log indicating that Mr. Snellman paid $360 for round trip cab fare on four separate occasions from his apartment to the airport in St. Louis, Missouri, and that he incurred vehicle expenses of $282 (using the standard mileage rate) on four corresponding round trips from petitioners’ home in Indialantic to the airport in Orlando, Florida. -7-
C. Parking Fees and Tolls
Petitioners claimed a deduction for parking fees and tolls of $360. They did
not provide any evidence to substantiate these expenses at trial.
Discussion
The Commissioner’s determination of a taxpayer’s liability in a notice of
deficiency normally is presumed correct, and the taxpayer bears the burden of
proving that the determination is incorrect. Rule 142(a); Welch v. Helvering, 290
U.S. 111, 115 (1933). Because, as discussed below, petitioners have not complied
with the Code’s substantiation requirements and have not maintained all required
records, the burden of proof as to any relevant factual issue does not shift to
respondent under section 7491(a). See sec. 7491(a)(1) and (2); Higbee v.
Commissioner, 116 T.C. 438, 442-443 (2001).
Deductions are a matter of legislative grace, and the taxpayer generally
bears the burden of proving entitlement to any deduction claimed. Rule 142(a);
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co.
v. Helvering, 292 U.S. 435, 440 (1934). A taxpayer must substantiate deductions
claimed by keeping and producing adequate records that enable the Commissioner
to determine the taxpayer’s correct tax liability. Sec. 6001; Hradesky v.
Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. -8-
1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer
claiming a deduction on a Federal income tax return must demonstrate that the
deduction is allowable pursuant to a statutory provision and must further
substantiate that the expense to which the deduction relates has been paid or
incurred. Sec. 6001; Hradesky v. Commissioner, 65 T.C. at 89-90.
When a taxpayer establishes that he or she paid or incurred a deductible
expense but fails to establish the amount of the deduction, the Court normally may
estimate the amount allowable as a deduction. Cohan v. Commissioner, 39 F.2d
540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85 T.C. 731, 742-743
(1985). There must be sufficient evidence in the record, however, to permit the
Court to conclude that a deductible expense was paid or incurred in at least the
amount allowed. Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957).
Under section 162(a), a deduction is allowed for ordinary and necessary
expenses paid or incurred during the taxable year in carrying on any trade or
business. The term “trade or business” includes performing services as an
employee. Primuth v. Commissioner, 54 T.C. 374, 377-378 (1970). However, an
employee business expense is not ordinary and necessary if the employee is
entitled to reimbursement from his or her employer. See Podems v.
Commissioner, 24 T.C. 21, 22-23 (1955); Noz v. Commissioner, T.C. Memo. -9-
2012-272. In addition, a deduction normally is not available for personal, living,
or family expenses. Sec. 262(a).
Section 162(a)(2) allows a taxpayer to deduct travel expenses, including
expenditures for meals and lodging, if the expenses are reasonable and necessary,
incurred “while away from home”, and made in pursuit of a trade or business.
Commissioner v. Flowers, 326 U.S. 465, 470 (1946). Although the term “home”
(or “tax home”) in section 162(a)(2) normally means a taxpayer’s principal place
of employment (and not the taxpayer’s personal residence), see Mitchell v.
Commissioner, 74 T.C. 578, 581 (1980), an exception to this rule arises when a
taxpayer accepts employment away from his or her personal residence and the
employment is temporary rather than indefinite, see Peurifoy v. Commissioner,
358 U.S. 59, 60 (1958); Deamer v. Commissioner, T.C. Memo. 1984-63, aff’d,
752 F.2d 337 (8th Cir. 1985). The purpose underlying this exception is to relieve
the taxpayer of the burden of duplicate living expenses while at a temporary
employment location, since it would be unreasonable to expect him to move his
residence under such circumstances. Tucker v. Commissioner, 55 T.C. 783, 786
(1971).
Section 162(a) (flush language) provides that “the taxpayer shall not be
treated as being temporarily away from home during any period of employment if - 10 -
such period exceeds 1 year.” Employment is considered temporary if the
engagement is expected to last for only a short period. Norwood v.
Commissioner, 66 T.C. 467, 469 (1976). Temporary employment may become
indefinite, however, if it is expected to last for a substantial, indefinite, or
indeterminate duration or due to changed circumstances or the passage of time. Id.
at 469-470; Kroll v. Commissioner, 49 T.C. 557, 562 (1968). Whether an
employment opportunity is temporary or indefinite normally depends on the facts
and circumstances of each case, and the burden of proving that employment was
temporary rests on the taxpayer. Rule 142(a); Peurifoy v. Commissioner, 358 U.S.
at 60-61; Welch v. Helvering, 290 U.S. at 111.
Respondent determined that Wentzville, Missouri, was Mr. Snellman’s tax
home between May 24 and November 18, 2009. Petitioners contend that Mr.
Snellman’s tax home was Indialantic, Florida--petitioners’ place of residence
during 2009. We agree with petitioners.
Although Mr. Snellman’s employment contract is not part of the record, he
credibly testified that Fidelis hired him as a temporary project manager for a single
project that was scheduled to end no later than December 31, 2009, or
approximately seven months after his date of hire. As it turned out, Mr.
Snellman’s employment with Fidelis ended a month earlier in November 2009. - 11 -
Mr. Snellman’s testimony that his employment with Fidelis was temporary, as
opposed to indefinite, is corroborated by the fact that his apartment lease was
scheduled to expire on December 31 and he negotiated an addendum to the lease
agreement to allow for termination of the contract on short notice. Considering all
the facts and circumstances, we conclude that Mr. Snellman’s employment with
Fidelis was temporary and his tax home for 2009 was Indialantic. See Linetsky v.
Commissioner, T.C. Memo. 1994-306.
We next consider whether the unreimbursed employee expenses in dispute
were ordinary and necessary expenses within the meaning of section 162(a) and/or
whether they have been properly substantiated.
I. Vehicle Expenses
Section 274(d) prescribes stringent substantiation requirements to be met
before a taxpayer may deduct certain categories of expenses, including travel
expenses, meals and entertainment expenditures, and expenses related to the use of
listed property as defined in section 280F(d)(4)(A). See Sanford v. Commissioner,
50 T.C. 823, 827 (1968), aff’d, 412 F.2d 201 (2d Cir. 1969). As relevant here, the
term “listed property” includes passenger automobiles. Sec. 280F(d)(4)(A)(i). To
satisfy the requirements of section 274(d), a taxpayer generally must maintain
adequate records or produce sufficient evidence corroborating his or her own - 12 -
statement which, in combination, are sufficient to establish the amount, date and
time, and business purpose for each expenditure or business use of listed property.
Sec. 1.274-5T(b)(6), (c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016-
46017 (Nov. 6, 1985).
Section 1.274-5T(c)(2), Temporary Income Tax Regs., supra, provides in
relevant part that “adequate records” generally consist of an account book, a diary,
a log, a statement of expense, trip sheets, or a similar record made at or near the
time of the expenditure or use, along with supporting documentary evidence.
Section 1.274-5(j)(2), Income Tax Regs., provides that the strict substantiation
requirements of section 274(d) for vehicle expenses must be met even where the
optional standard mileage rate is used. Moreover, the Court may not use the rule
established in Cohan v. Commissioner, 39 F.2d at 543-544, to estimate expenses
covered by section 274(d). Sanford v. Commissioner, 50 T.C. at 827; sec. 1.274-
5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).
Taxpayers lacking a contemporaneous log are expected to maintain a record
created as near in time as possible to the particular expenditure or business use
(including the elements outlined above), supported by corroborative documentary
evidence that carries with it a high degree of probative value. Sec. 1.274-5T(c)(1),
Temporary Income Tax Regs., supra. - 13 -
Petitioners claimed a deduction of $4,060 for vehicle expenses related to
Mr. Snellman’s employment with Fidelis. Although petitioners reported on their
tax return that Mr. Snellman drove 7,381 miles for business purposes,
Mr. Snellman produced a mileage log (admittedly created after respondent issued
the notice of deficiency) indicating that he drove 10,621 miles for business
purposes.
There is no evidence that Mr. Snellman maintained any records or notes
related to his vehicle expenses at the time they were incurred. The mileage log
offered into evidence at trial was created long after the taxable year in issue and
lacks a description of the business purpose of each trip. Inasmuch as the mileage
log fails to meet the strict substantiation requirements of section 274(d) and with
the minor exception noted below, we sustain respondent’s determination
disallowing a deduction for vehicle expenses. See Sanford v. Commissioner, 50
T.C. at 827; sec. 1.274-5T(a), Temporary Income Tax Regs., supra.
Although the mileage log itself is of little to no value to the Court, there is
no question that Mr. Snellman drove from Florida to Missouri and back, in May
and November 2009, respectively, in connection with his employment with
Fidelis. A round trip by car from Indialantic, Florida, to Wentzville, Missouri, is
approximately 2,210 miles. Consistent with our holding that Mr. Snellman’s tax - 14 -
home was Indialantic, we hold that petitioners are entitled to a deduction for
vehicle expenses of $1,215 (before the 2% floor prescribed in section 67) to
account for the cost of transportation to and from his temporary work location.
II. Parking Fees and Tolls
Petitioners claimed a deduction of $360 for parking fees and tolls.
Petitioners did not develop the issue at trial, and they did not present any records
or make a reasonable reconstruction in an effort to substantiate the expenses.
There is no evidence in the record that would allow us to estimate the amount of
an allowable deduction. See Vanicek v. Commissioner, 85 T.C. at 743.
Consequently, respondent’s determination disallowing a deduction for parking
fees and tolls is sustained.
III. Travel Expenses
Petitioners claimed a deduction of $27,200 for travel expenses incurred
while away from home. Specifically, they concluded that Mr. Snellman was
entitled to a deduction for his subsistence (meals and lodging expenses) equal to
$170 per day multiplied by 160 days (representing the days he purportedly was in
Missouri).6 Respondent asserts that Mr. Snellman spent 136 days in Missouri for
6 IRS Publication 1542, Per Diem Rates (For Travel Within the Continental United States) (Rev. October 2008; October 2009), provides a per diem rate for St. (continued...) - 15 -
business purposes in 2009, that petitioners failed to properly compute the
deduction claimed for meal expenses in accordance with section 274(n), and that
they are not entitled to compute the amount of any deduction allowable for
lodging expenses on a per diem basis.
A. Per Diem Allowances
The Commissioner is authorized to prescribe rules under which certain
types of expense allowances, including per diem allowances for ordinary and
necessary expenses for traveling away from home, will be regarded as satisfying
the substantiation requirements of section 274(d). Sec. 1.274-5(j), Income Tax
Regs. Under this authority, the Commissioner issues updated revenue procedures
each year enumerating the per diem rules. As is relevant here, Rev. Proc. 2008-59,
2008-2 C.B. 857, applies to expenses incurred before October 1, 2009, and Rev.
Proc. 2009-47, 2009-42 I.R.B. 524, applies to expenses incurred on or after
October 1, 2009.
Employees who are not reimbursed by their employers may use an optional
per diem method in lieu of using actual expenses to compute their deductible meal
and incidental expenses paid or incurred in the course of employment-related
6 (...continued) Charles County, Missouri, of $170 during 2009, comprising $59 for meals and incidentals and $111 for lodging expenses. - 16 -
travel. Under this optional method, meal and incidental expenses may be
computed on the basis of the Federal meal and incidental expense rate for the
locality of travel for each calendar day the employee is away from home. Rev.
Proc. 2009-47, sec. 4.03, 2009-42 I.R.B. at 526; Rev. Proc. 2008-59, sec. 4.03,
2008-2 C.B. at 860. Expenses will be deemed substantiated for purposes of
section 1.274-5, Income Tax Regs., if the employee substantiates the elements of
time, place, and business purpose of the travel. Harris v. Commissioner, T.C.
Memo. 2012-312, at *5-*6; see also Romer v. Commissioner, T.C. Memo. 2001-
168; Reynolds v. Commissioner, T.C. Memo. 2000-20, aff’d, 296 F.3d 607 (7th
Cir. 2002); Rev. Proc. 2009-47, sec. 4.03; Rev. Proc. 2008-59, sec. 4.03.
B. Travel Status
Mr. Snellman spent 26 days in Florida visiting his family between May 24
and November 18, 2009. After Fidelis terminated his employment on
November 2, 2009, Mr. Snellman spent 16 additional days in Missouri before
driving to Indialantic. Allowing Mr. Snellman a reasonable amount of time to
vacate his apartment and wind up his affairs in Missouri, we conclude that he
spent a total of 137 days in Missouri for business purposes. - 17 -
C. Meals and Incidental Expenses
Mr. Snellman was not reimbursed by Fidelis for his meals and incidental
expenses, and he otherwise may substantiate such expenses under the revenue
procedures outlined above. As respondent points out, however, the amount
allowable as a deduction for meals and entertainment expenses is subject to the
50% limitation prescribed in section 274(n). In accordance with the foregoing, we
conclude that petitioners are entitled to a deduction of $4,042 for meals and
incidental expenses before the application of the 2% floor (i.e., the per diem rate
of $59 multiplied by 137 (the number of days Mr. Snellman spent in Missouri for
business purposes) multiplied by 50% pursuant to section 274(n)).
D. Lodging Expenses
Lodging expenses paid or incurred by an employee while away from home
are not eligible to be computed on the basis of a per diem allowance. See Rev.
Proc. 2009-47, sec. 1, 2009-42 I.R.B. at 524; Rev. Proc. 2008-59, sec. 1, 2008-2
C.B. at 857. An employee must substantiate the amount, time, place, and business
purpose of each claimed lodging expense. Harris v. Commissioner, at *5-*6.
Petitioners failed to substantiate Mr. Snellman’s lodging expenses between
May 24 and June 10, 2009. Although he testified that he stayed in a hotel during
this period, petitioners did not offer any records such as a hotel invoice or credit - 18 -
card statement to substantiate the amount, if any, that he paid for lodging during
this period. On the other hand, the record reflects that Mr. Snellman entered into a
lease agreement to rent an apartment at a rate of $525 per month from June 11 to
December 31, 2009. The record does not include canceled checks or receipts
showing that Mr. Snellman actually paid the $525 monthly rent for the full term of
the lease. Nevertheless, Mr. Snellman’s testimony regarding his living
arrangements was forthright and credible. Consequently, we conclude that
petitioners are entitled to a deduction for lodging expenses of $2,975, comprising
a pro rata share of the monthly rental charge for June and full monthly charges for
July through November.
IV. Additional Expenses
Petitioners provided receipts for various expenditures including dry
cleaning, Internet and cable services, car rental, airfare, and cab fares, along with
logs detailing round trip mileage from petitioners’ home in Indialantic to the
airport in Orlando and from Mr. Snellman’s apartment in St. Charles to the airport
in Missouri. By all indications, these expenses are nondeductible personal
expenses. In the absence of any showing that these expenses served a business
purpose, we conclude that no deduction is allowed for these items. - 19 -
Consistent with the preceding discussion,
Decision will be entered
under Rule 155.